How to start running a business in South Africa

Our mind is full of ideas which are knocking our heads. One just needs to know what is required and how to go about a business idea.

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  • How to start running a business in South Africa
    Manish Khanna Image Manish Khanna

    How to start running a business in South Africa

    Our mind is full of ideas which are knocking our heads. One just needs to know what is required and how to go about a business idea.

    South Africa, the second largest economy in Africa accounts for 24% of its gross domestic product in terms of purchasing power parity and is also ranked as an upper-middle income economy by World Bank. Being a very mature and promising country, South African market offers a nice combination of economically well-developed infrastructure with a lively and emerging market economy. Immense parades have since 1994 have made this country a one of the major contributors in international markets. The economy of South Africa is blessed with abundant natural resources, a developed banking system and infrastructure with enough capital boosters to upgrade various businesses, a decent tax structure, a type of business culture that is quite similar to many other developed nations, stable political climate and lastly a stock exchange that is a gateway to other African markets. All these factors make South Africa a good place to start a business.

    Setting up a new business is nothing more than a distant dream. In the same way, millions of South Africans and many other investors also dream of starting their own business in South Africa. The South African economy is considered the land of opportunity by many other countries in the world. People from all parts of the world and most from neighboring countries come in the flock to South Africa to fulfil their dream of starting a business.

    running a business

    Before starting a business, one has to decide the type of business structure. It is suggested that one should start with small business as company structures and management systems can become quite complicated at the initial stages. One can take up any of following types of business structure:

    • Sole trader – a very common type of ownership is sole trading i.e. single trading. One can easily take up a business without creating a company name or structure. Out of many other types of business structures, it is the simplest form of business and requires virtually no effort to set up and get going. Initially, the investors have to generate money to pool in the resources required in the business. There are many kinds of risks associated with a sole proprietorship. If the business fails, the creditors of the business will take all the assets: house, car, Furniture - everything to recover the money owed to them. The businessperson is the business himself so no new entity is created.
    • Close corporation - it is a type of business that is set up using a corporate business structure, but in which all the shares are held by a selected few individuals who are usually closely associated with the business. This type of business has been discontinued and is no longer an option for those who will start their business now. They are also known as cc. Those cc’s that were registered before 2011 continue to exist, but no more are being registered.
    • Private company – it is one of the most common types of business structure in South Africa and most likely for entrepreneurs who want to have the advantages of running their businesses as a company. This form of business structure has many advantages associated with it such as getting a more professional image and being reviewed by an accountant who can help ensure that the entrepreneur is running things properly and following the law- particularly when it comes to certain taxes. Company form also allows several people to get together and share in the ownership of a business and make it easier to sell portions or all of it to future buyers.

    The very next step after deciding the form of business structure is generating a business plan. Bankers, investors, and business partners demand business plans for finance or for providing services. An entrepreneur is required to build confidence in the banker’s mind to get a business loan. A business plan can either be written or oral. For either case, entrepreneur requires the help of professionals. After hiring a professional or a team of professionals, one needs to put the ideas on paper. Dividing the business plan under following headings is a must for a well thought out business plan.

    1. Prepare summaries – this is a small document which describes what the business will do, how it will do it and the reasons for the business to become successful. It is a brief description of the business and gives the readers an idea about how the company will operate. In a nutshell, it is a quick summary of everything that follows.
    2. Overview of business and its operations – this is a detailed document which describes exactly what the company will do and how it plans to make money. It also states the money requirements of the day to day operations of the business. It is required to discuss the product or service in detail focusing on both its advantages and disadvantages. Many other details regarding the product should be placed in this document.
    3. Market strategies- research about the market should be included in this piece of document. Information regarding the product’s target markets, advertising and competitors should be provided here.
    4. Managing the business- the division of the tasks under various subheads should be placed in this document. If the entrepreneur is planning to outsource any functions, then it should also be mentioned here.
    5. Infrastructure- this document should include the location from where the business would operate. This document also includes the asset requirements of the business such as vehicles and other special assets that may be used by the company.
    6. Financial statements - this is the most important document. It contains the statements regarding expected future incomes such as balance sheets and cash flow statements.

    After accomplishing the two main targets, the last target is to finally start the business. It includes some steps that entrepreneur should follow which are:

    • Creation and registration of the company

    If the entrepreneur is a sole proprietor that means he is simply trading in his own name and not as a company or a close corporation, then he should simply ignore this step. If the business is set up as the company then entrepreneur needs to be audited each year. It requires preparation of some documents which are usually prepared under the guidance of professionals. In the third form of business structure i.e. close corporation, the process of registration is simple and inexpensive to do.

    • Creating a bank account

    In the case of a sole proprietorship, the entrepreneur can trade with his own personal account. However, in the case of a company, one needs to open a bank account in the name of the company. The bank requires documents for creating a bank account in the name of a company such as company registration documents, ID book of all the members of directors and proof of business address and home address of all the members and directors. The bank will now be in a position to open a bank account in the name of the company.

    • Trade

    This is the final step towards running a business. With a bank account and all the documents in hand, the business can easily receive and send payments to its creditors and debtors. The company/close Corporation /sole proprietorship has now entered the world of business.

    South Africa has been regarded as a hub for doing businesses. It is ranked 34th out of 183 countries by World Bank for ease of doing business. In the lot of 183 countries, 46 sub-Saharan were surveyed out of which South Africa was placed at number two, falling only behind Mauritius.

    The success of the business not only depends on the type of facilities offered by the country in which the business is situated. Success and failure depend on the state of mind. If the entrepreneur thinks that his employees would do everything for him, then the business would definitely fail. On the other hand, if joint efforts and put into the business, then as long as one has the knowledge required there is no limit to what one can achieve. The most significant factor necessary for the success of a business is the passionate belief in the power of oneself. Businesses can definitely succeed when entrepreneurs have faith in the power of their actions. The ones who consistently do their best and who believe in their success will find a way to succeed despite many obstacles.

  • Author Info Manish Khanna

    Manish Khanna is a serial entrepreneur, philanthropist and genuine Australian success story. In a decade he has built an online empire unlike any other. He is currently the Managing Director of more than 10 individual companies. These include the flagship Business2Sell which operates internationally in 6 countries. The others include CommercialProperty2Sell, Million Dollar Mansions, Netvision, BCIC Pty Ltd and Better Franchise Group, to name a few.

    With more than 21 years’ experience developing web applications plus very successfully creating, managing and growing start-ups, he is forging ahead to turn more of his innovative ideas into future success stories.